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What is Islamic Economics? Professor Muhammad Anas Al -Zarqa 6 Ramadan 1428 18 September 2007 Q.1. What is Economics? Ans.1. It is the social science that studies the production, distribution and consumption of goods and services. Q.2 What is an Economic System? Ans.2. It is the set of goals rules and institutions that society prefers to follow in its economic life. Economic systems are the major repository of the “values” and ideals that society wants to live up to in its Economic life. 1 Q 3. What are the main components of Economics? For this lecture it is useful to divide Economics as a field of study into three components: (A) Economic analysis: the cause – effect and descriptive economic statements. This is the “What is” or “positive” element in Economics. (B) Comparative economic systems. This is the “normative” component, i.e. what ought to be, the do’s and dont’s, haraam and wajib in economic life. (C) Economic Policies: How to move from here to there. How to change present Economic reality to make it closer to our ideals (our Economics system goals). Economic policy always involves both “analysis” and “system values”. 2 Q.4 What is Islamic Economics? Ans.4 There are two competing definitions: First definition: Islamic Economics is the science that studies the economic life of a society that is guided by Islamic Shari’ah. Thus economic life of non-Muslim societies falls outside the scope of this definition. Second definition: Islamic Economics is (economics guided by Islamic Shari’ah). Its scope is wider as it includes all societies both Muslim and non-Muslim. It studies economic behavior, institutions and policies even when not conforming to Shari’ah. Islamic Economics is (Economics in Islamic context). 3 4.1 Which definition is better? I definitely favor the second more comprehensive definition, for several reasons: (a) It is consistent with the universality of Islam, (b) it is consistent with the Quranic injunction to draw lessons (ibrah) from other societies experiences. How can you draw lessons from something you don’t study? 4.2 Some implications of definition 2: You must learn conventional economics in all its varieties (i.e. capitalist, socialist etc.) and be able to put it in Islamic context. We need to clarify the meaning of “putting Economics in Islamic context”. 4 5. How to put Economics in Islamic context? Your chosen Economic system gives you (a) goals, (b) rules, and (c) preferred institutions. Economic analysis tells you how to get closer to your goals, while observing the rules with the help of (and without damaging) the preferred institutions. You put economics in Islamic context when you look at each economics idea from the point of view of Islamic Economic system 5 6. What are Islamic Economic Goals (a) Minimum level of living for each person to be guaranteed. (b) Just distribution of income and wealth (c) …………………….. 7. Some Islamic Economic institutions Well functioning competitive markets The family as a major socio-economic building block The state upholding justice, resolving disputes, setting detailed rules and policies to achieve system goals. 6 8. Economic Analysis in the service of Shari’ah Is it permissible to borrow from “Western” Economics? Is it useful? Is it Western? Examples of conventional Economic analysis useful in understanding some Fiqh muamalat: (A) Agency theory in contracts. Why costs of monitoring an agent behavior under different contracts explain the conditions which one contract is more useful than another. E.g. mudarabah financing Vs. murabaha 7 (B) Functional Vs. personal distribution of income (C) Scope . and enforcing Shari’ah prohibition of monopoly and of price fixing Example of conventional Economic analysis corrected by Islamic economists: Is interest essential for an efficient economy? 8 9. Conventional (non-Islamic) Economic Schools of Thought Diversity among schools Neoclassical Keynesian and Neo-Keynesian Institutional: in market and monetary Economics 10. Methodological Issues in Islamic Economics 10.1 Drawing the borders between fiqh and Islamic Economics. Place of maqasid al-Shari’ah and fiqh muamalaat. 10.2 Handling diversity in Fiqh rulings 9